Wild Oats May Be in the Market for a Buyer

Retail: Overhaul of natural-foods chain has not boosted sales. Company plans to divest eight stores.

Wild Oats Markets Inc., the nation's second-largest natural-foods retailer, appears to be looking for a buyer, analysts say, after a dramatic overhaul of the chain has taken longer and proved more costly than expected.

The Boulder, Colo.-based company in May began transforming its locations from natural food stores to healthy gourmet supermarkets to better compete with rival Whole Foods, whose stores generate almost 50% more sales per square foot.

Last month, when the 111-store chain announced dismal third-quarter earnings, company officials admitted that the changes were not enough to boost sales and bring more customers into its stores.

"Over the last several months, we've conducted a further evaluation of the competitive nature of our business," Chief Executive Mike Gilliland said in a company statement last week. "It has become clear that a more extensive repositioning than the initial plan we announced last May is required."

To get back on track, President Jim Lee says the company plans to raise its profile by discounting more of its products and increasing its spending on advertising and employee training. It plans to divest eight small or less profitable stores and will take a $14- to $15-million write-down on those assets.

Wild Oats has 17 stores in California, but it would not say whether any would be among those divested.

Analysts characterized the moves as housecleaning before a sale.

"They've certainly got everything out on the table," said Bonnie Kramer Tonneson of Chase H&Q in San Francisco. "I wouldn't be surprised if Wild Oats is entertaining a buyer at this point."

Analysts say that could be an investment group, other natural-foods chain like Whole Foods, or even a conventional supermarket chain looking to exploit the higher-margin natural-foods niche, which has been growing at a pace of almost 20% a year.

Lee of Wild Oats declined to comment on the sale or merger scenario, calling it "speculation." And officials at Whole Foods declined to discuss whether they were negotiating to purchase the company or any of its stores.

In California the chain plans to open two more stores--in Long Beach and Irvine--in the first quarter of next year. These larger stores will be some of the first examples of the chain's new prototype, Lee said. Wild Oats stock was chopped in half Oct. 27, to $5, the day after it posted third-quarter earnings of 5 cents a share, much lower than the 22 cents analysts polled by First Call/Thomson had expected. Its comparable-store sales slid 3% and the company was forced to lower its profit expectations for the rest of 2000 and 2001.

"The aggressiveness of the write-offs and lower expectations [for next year] make me think they are cleaning things up for a sale," said Scott Van Winkle, an analyst with Boston-based Adams Harkness and Hill.

Analysts say Wild Oats had been unable to fully capitalize on the natural-foods boom as rival Whole Foods had, because its smaller stores felt cramped and couldn't accommodate as many prepared foods. Wild Oats stock closed at $5.25 down 12 cents on Nasdaq.